Monopoly Deadweight Welfare Loss

• Deadweight welfare loss

  Not recovered
• Welfare


  Society Surplus, the sum of consumer and producer Surplus
• Monopolies

  Cause a deadweight welfare loss
• Compared to competitive outcomes, monopolies are reducing the total level of society surplus
• Proving monopolies cause deadweight welfare loss

  1. Draw monopoly diagram with marginal cost and two revenue curves

  2. Compare consumer and producer Surplus at competitive vs monopoly outcomes

  3. Compare total Society Surplus at competitive vs monopoly outcomes
• Competitive outcomes

  • Consumer Surplus = area a + b + c
  • Producer Surplus = area d + e
• Monopoly outcomes

  • Consumer Surplus = area a
  • Producer Surplus = area b + d
• Deadweight welfare loss in monopoly outcomes
• Monopolies reduce the total level of Society Surplus
• The biggest concern is the huge loss of consumer surplus as consumers are exploited by higher monopoly prices